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Revolving doors

Posted by Helen Sunday, March 02, 2008 , , ,

The Hungarian news agency, MTI, has reported that Hungary is now committed to the Nabucco project and the EU energy policy, whose purpose, more or less, if the story of it possibly taking gas from Gazprom is accurate and, more to the point, will be accurate in a year’s time when Russia’s gas production might change.

According to the MTI report:

Ministers Kinga Goncz of foreign affairs, Csaba Kakosy of economy and Janos Veres of finance met reporters after informing the EU and NATO member states' ambassadors about Hungary's energy policy.

Both Kakosy and Goncz emphasised that Hungary would provide "active support" for Nabucco.

Goncz said the Foreign Ministry would set up a post of roving ambassador who will act as a liaison to the countries involved in Nabucco, and promote the implementation of the project.
Which sounds good if we really want to reach a stage when European countries no longer rely exclusively or near-exclusively on Russia for their energy. How does this square with Hungary’s earlier decision to stay as close as possible to Russia economically and, particularly, to Gazprom.

At the time the Budapest Business Journal (BBJ) expressed some scepticism about the decision being a sensible one.
With no shortage of drama, political grandstanding, and perhaps hyperbole, Orbán sought to attack his incumbent opponent Prime Minister Ferenc Gyurcsány where he felt he had the most leverage - the government’s decision to back the pipeline to bring Russian gas under the Black Sea through to Turkey (the Blue Stream extension) - a move which dealt a lethal blow to the rival Nabucco project which would ease energy dependence on Russia.

For countries that have only recently escaped the clutches of Soviet rule (the last Russian soldiers left Hungary in 1991), their hard-earned sovereignty is highly treasured, and for this reason Orbán’s exaggerated characterization of Gyurcsány’s energy policy decisions as a renewed surrender to communism gained so much traction.

But did Gyurcsány’s strategy to earn favor with the Kremlin get Hungary any relief? Or is the country headed toward a new version of Goulash State Corporatism no matter what? Indications point to the latter, as the latest protectionist move by the Hungarian government to allow its largest energy firm, MOL, to block unwelcome foreign bids via „Lex MOL” legislation is raising some eyebrows - illustrating at once a failed energy strategy and Gazprom’s tactics of disaggregation.
Move forward to last week and what do we see in the International Herald Tribune?
Hungary's government on Thursday signed an agreement joining a natural gas pipeline project anchored by Russia — amid calls at home for greater transparency in the deal and worries about Russia's growing influence.

Prime Minister Ferenc Gyurcsany was in Moscow on Thursday to attend the signing of the deal with Gazprom, Russia's natural gas monopoly, on a joint venture to build the Hungarian section of the South Stream gas pipeline. The pipeline would bring Russian gas under the Black Sea to Bulgaria before splitting into several branches to Western Europe.
Understandably, there are worries in Hungary about this deal. The opposition party FIDESZ and the Socialists’ coalition partners, the Free Democrats have raised concerns about the way the deal was negotiated with minimum transparency and about the damage it might do to Hungary’s standing in the EU and the Western alliance, in general.

As in Bulgaria, a deal of this kind raises the spectre of economic over-dependence on Russia in countries that have only recently regained their political (and economic) independence.

US Deputy Secretary of State urged Hungary to put the Nabucco project first and that may account for those pious statements I started this posting with.

Analysts are now putting their money on the South Stream pipeline as opposed to Nabucco, though neither has been built.
"The momentum is really with the South Stream pipeline now," said Andrew Neff, an energy analyst with Global Insight in Ankara, Turkey.

While South Stream and Nabucco could be complementary, "the onus is really going to be on the EU, because we may see some of the commercial support for Nabucco evaporate" as the South Stream project goes forward, Neff said.

The EU has seen efforts to coordinate the political and commercial sides of Nabucco slowed by having to deal simultaneously with the many countries and interests in the 27-member bloc, a complication Russia and Gazprom do not have.

"Gazprom's strategy is to have bilateral agreements with each country separately," said Gergely Boszormenyi Nagy, an analyst at the Perspective Institute in Budapest. "This is one of the most important obstacles to the development of a common EU energy policy, which Russia is knowingly using."

Then again, reliance on Russia producing enough gas and building those pipelines in time may be a little premature. One must recall that production of both gas and oil has fallen sharply in that country in the last couple of years and future extraction is likely to be more difficult both for reasons of geography and because of the gradual exclusion of western partners from major projects.

Also, Russia is a huge consumer of energy as well as exporter and if production falls, decisions will have to be taken as to what comes first: internal or external customers. That famed Putinite “peace and stability” depends on keeping both happy.

As for Hungary and its Prime Minister and his many opponents, we need to keep watching those revolving doors. Who will come out first?